Behind LinkedIn’s Blowout Earnings Report

LNKD powered by continued focus on innovation, diversifying revenues

LinkedIn (NYSE:LNKD) has set itself apart from its social-stock brethren by consistently beating Wall Street expectations since its May 2011 IPO.

And that reputation is safe for another three months after LNKD killed its fourth-quarter report.

Q4 revenues rocketed by 81% to $303.6 million, and earnings surged 66% to $40.2 million, or 35 cents a share. Both figures clubbed expectations by Wall Street analysts, who were looking for earnings of 19 cents per share on revenues of $279.93 million. Looking ahead, LNKD forecast revenues in a range of $305 million to $310 million — good news because that’s not only better than the consensus of $301 million, but LinkedIn also has a tendency to low-ball its own expectations.

As of early Friday trading, LNKD’s shares had jumped 20% to the $148 area on the news — more than triple its $45 IPO price.

The huge competitive advantage for the company is its massive user base, which increased by 39% over the past year to 202 million. Members use LinkedIn as a digital resume, as well as a way to network with other professionals.

LinkedIn leverages these users through three core revenue streams — recruiting services, advertising and premium subscriptions. Recruiting continues to be a key driver, with revenue growth coming in at 90% to $161 million for the latest quarter.

An important part of the growth strategy has been LinkedIn’s move into global markets. The company has offices in 26 countries and gets more than 70% of its new member signups from outside the U.S., and LNKD recently added six new languages to its Apple (NASDAQ:AAPL) iPad app.

LinkedIn also continues to aggressively focus on innovation. During the past couple years, the company has revamped its core infrastructure, making it easier to launch new products, especially mobile apps. LNKD also has updated its user profiles and front page, and added new features including endorsements, notifications and unique content — all helpful in encouraging more engagement by users.

The one downside to LNKD shares right now: a nosebleed valuation — something you might expect after a stock has ripped off 90% gains in just a year’s time. Based on its full-year guidance, LNKD shares are trading at near 20 times revenues, which is well ahead of a 13 multiple for Facebook (NASDAQ:FB) and dwarfs the 2 for Zynga (NASDAQ:ZNGA). Its forward P/E of 70 is awfully frothy, too.

Investors should be cautious — as seen with other high-fliers, nothing is guaranteed, and that goes double for the fickle world of social media. But Wall Street hasn’t seemed to care about LNKD’s lofty value metrics, and that should continue as long as the company keeps up the growth rate.

Based in Silicon Valley, Tom Taulli is in the heart of IPO land. On a regular basis, he talks with many of the top tech CEOs and founders trying to find the next hot deals and finding out which start-ups are stinkers.

A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.

Tom is routinely quoted in the media about upcoming deals with his interviews on CNBC and Bloomberg TV, but he is eager to take your questions too. You can message him on Twitter at @ttaulli. And feel free to weigh in via the comments section on any of his IPO Playbook posts.